MARKETS: Fed policy decision and UK GDP in focus

26 July, 2017

By Lukman Otunuga, Research Analyst at FXTM

Asian shares were mostly mixed in early trading on Wednesday, while the Greenback held steady ahead of the Federal Reserve decision later in the day which is largely expected to conclude with monetary policy unchanged.

With it already being considered a foregone conclusion that US interest rates will be left unchanged in July and no press conference scheduled by Janet Yellen, Wednesday’s FOMC meeting is likely to be a non-event. Although the absence of a press conference and no new summary of economic projections may take away a chunk of the excitement, investors most probably will use this opportunity to closely scrutinise the policy statement for clues on the Fed’s tightening plan.
Many questions still remain unanswered over both the timing and pace of rate hikes which may weigh on the minds of Fed watchers ahead of the rate decision.
Markets will also be paying close attention to see if the policy statement offers any fresh details on how and when the Fed plans to normalise its $4.5 trln balance sheet. Any unexpected surprises from the policy statement may come in the form of inflation concerns as the central bank acknowledges the fall in inflation and the impact it has on reaching their 2% inflation target.

Sterling pressured ahead of GDP data

Sterling dipped towards 1.3000 on Wednesday as investors became anxious ahead of the release of the UK Q2 GDP. News about Sterling continues to revolve around Brexit-based uncertainty, political risk, and weakness in UK economic fundamentals that continue to weigh heavily on the currency.
The preliminary GDP data will be in focus and is expected to show that the economy grew by 0.3% in the second quarter of 2017. A reading below market consensus is likely to quell expectations of the BoE raising interest rates in the near term.
From a technical standpoint, the GBPUSD remains at risk of depreciating lower once bears conquer the 1.3000 psychological level. A break and daily close below 1.3000 should encourage a further deprecation lower towards 1.2850.

WTI Crude sprints to $48.50

WTI Crude bulls were unleashed on Tuesday with prices lurching to eight-week highs above $48.50 after the American Petroleum Institute (API) reported that US Crude stocks fell sharply last week. The upside momentum was supported by optimism over Saudi Arabia pledging to make deeper cuts to its crude exports in August, which inspired oil bulls to attack further.
While OPEC and non-OPEC producers may be commended once again by exploiting oil’s sensitivity to generate speculative boosts in prices, this could come at a heavy cost if oil markets fail to rebalance.
With the oversupply concerns still a major theme that continues to fuel the bearish sentiment towards oil and markets remaining anxious over higher production volumes from other oil producers, WTI Crude still remains exposed to downside risks.